Direct Sales Take Some Sting Out Of Low Prices

Plummeting pork prices last year were the last straw for many independent pork producers."I'm not raising any more pigs without a contract for production with a guaranteed minimum price," said one medium sized, central Iowa finisher recently. "My banker and my wife insist on it."While contracts take some of the sting out of low prices, there may be better ways to move market hogs at prices above the

Mick Lane | Nov 01, 1999

Plummeting pork prices last year were the last straw for many independent pork producers.

"I'm not raising any more pigs without a contract for production with a guaranteed minimum price," said one medium sized, central Iowa finisher recently. "My banker and my wife insist on it."

While contracts take some of the sting out of low prices, there may be better ways to move market hogs at prices above the local slaughter price.

When prices fell last year, demand for custom processing at small local slaughter plants skyrocketed. Pork producers near an active custom processing plant found they could improve their profits by selling cuts or whole hogs to consumers.

When the big price drop hit last year, Schafer Farms, Goodhue, MN, had already taken the first steps to buffer their business.

Lowell and Pat Schafer and their sons and daughters-in-law (Brandon and Monica, Brian and Heather) have a 1,500-sow, farrow-to-finish operation, a 300-cow beef herd, plus row crops and hay.

When a local slaughter plant offered a class in selling direct to consumers, they jumped at the chance to learn. "We decided we were going to do this when the prices took the big plunge," says Heather.

The class, sponsored by Lorentz Meats, Cannon Falls, MN, outlined just about everything they needed to get started. "We developed a brand name with a logo, started making contacts with grocers and other places we could sell pork and beef and by the first of April, we were in business," Heather says.

Cattle and hogs are slaughtered, processed, packaged and frozen at Lorentz Meats. The Schafers purchased two used refrigerated trucks to transport the meat to clients. Not only do they provide meat to grocery stores, they also sell direct at farmer's markets and from the trucks at convenience store parking lots and other locations in their area. Some customers now come to the farm to purchase meat. And, for orders of $100 or more, they'll deliver as far away as the Twin Cities, just 50 miles or so to the north.

The Schafers aren't the only farmers working with Lorentz Meats in this way.

Farmer To Consumer Sales "For years, we were a small, custom processing plant, serving local customers and farmers," says Mike Lorentz, who manages Lorentz Meats with his brother Rob. "We were looking for a different way to build our business and help our farmer customers to survive."

The Lorentzes put together a curriculum to teach livestock and poultry producers how to sell their farm-raised meats to consumers. Their program is called Branding Your Beliefs.

The Branding Your Beliefs program and curriculum is copyrighted and was developed with funding from USDA's Fund for Rural America. Land O'Lakes Cooperative helped Lorentz receive the funding by writing the grant proposal.

The Lorentz program helps producers establish their sales by offering advice on everything from getting all the right state and federal permits and clearances to tips in designing brochures and advertising to build business.

"We want people to believe in their product, and market that belief," Lorentz says. "Most producers are doing a good job raising their livestock. This allows them to explain and share their enthusiasm with consumers, who love to hear that farmers produced their products with a purpose. They're more willing to buy from the farmer who can tell them 'I made the best hog or beef or chicken I can make and I feed this to my family, too.' "

One Branding Your Beliefs participant, a 4,000-head/year finishing operation is now putting 25 hogs/week through the Lorentz facility. Every pound of meat is sold from trucks similar to the Schafers'. Although they're reluctant to disclose their names, much less net income figures, they estimate they're grossing more on 25 head sold direct than they would have received on 60 head sold to the slaughter plant.

Still, Heather Schafer cautions that there are a lot of costs involved in selling direct. Start-up costs include market research, developing logos and promotional materials (banners, signs, lettering on the trucks, brochures, letterhead and business cards, etc.). The used trucks cost around $10,000 each. And, of course, they have to pay slaughter, processing, packaging and transportation costs for the meat.

The Schafers also incorporated the meat sales business separately from the farm to protect the farm from any liability aimed at the meat business.

Branding Your Beliefs has worked so well that Lorentz Meats is planning a $2.2 million expansion to double its slaughter capacity.

Heather Schafer says when the expansion is completed, they'll be increasing their volume, too. "We've been able to sell about 200 hogs and 50 steers through this program and I think we could do a lot more when Lorentz is able to handle more for us," she says.

Heather, who quit her full-time job off the farm to work in the meat sales venture, says while they've sold a lot of meat and have built up a good list of clients, they may have to wait a couple of years to see a profit. But, she adds, the potential is there to make considerably more profit selling their branded meats than they'll make selling finished hogs and cattle to a slaughter plant.

They have a Web site under development and soon will offer their farm-raised meat products on the Internet.

Cooperative Packing Plant The Alma Cooperative Locker Association took a different tactic in trying to better business for itself and its farmer members.

The customer slaughter, cold storage plant and meat market is located in Alma, MO, a small rural town in the eastern shadow of greater Kansas City.

While it was once just a small town locker plant, the Alma Cooperative Locker now sells primal pork, beef and even elk cuts to some of the top restaurants in the metropolitan area under the brand name, Alma's Farm Fresh Meats.

When he took over as general manager of the company in late 1996, Don Stoll says it was immediately apparent that if it was going to survive, it had to do more than process and store meat for a local clientele. The local population was declining and the non-farmers were going to Kansas City to look for work.

Stoll followed them to Kansas City, looking for a market. Backed by the cooperative's nine-member board of directors and armed with a promise of a consistent supply of high quality meats from local farmers, Stoll marched into restaurant after restaurant - and came away with a surprising number of orders.

Most of those initial, one-time orders have turned into standing orders. The co-op also provides pork and beef to several meat markets in the area and sells both fresh and frozen meat at its Alma location.

The co-op just added elk to its meat line. "Elk producers are still building breeding herds, so there aren't many slaughter animals yet," Stoll says. And the meat is still considered exotic, so there's not a lot of demand, either. But so far, they've shipped processed elk to restaurants in larger markets to the east and even provided meat for the North American Elk Breeders Association's annual meeting last year in Orlando, FL.

Stoll sees serving the premium meat and restaurant market as a benefit not just to local farmers but to the viability of their community. "We're not just meeting the demand for meat," he says. "We're providing jobs - jobs that will keep people and other small businesses here in the community."

A Better Pork? Low hog prices were the second strike against Kelly Biensen and a number of other Berkshire raisers in central Iowa. The first was the Asian economic crash in 1998.

Biensen produces some market hogs but the mainstay of his business is purebred Berkshire breeding stock. Several of his customers are involved in American Berkshire Gold, a certified Berkshire pork program from the American Berkshire Association. Through this program, producers were exporting Berkshire pork at premium prices, mostly to Japan and other Pacific Rim countries. When Asian economies crashed, the market for Berkshire Gold shrunk significantly, almost immediately.

Biensen has long believed that Berkshire pork is superior in taste and other eating qualities to the meat from most other breeds - and he can cite taste tests that bear this out.

So he decided the best way to save his business was to save his customers. And the way to save his customers was to find them a better, more reliable market.

Eden Farms Certified Berkshire Pork is the outgrowth of that decision. Biensen began by contacting meat buyers and chefs at some of the better restaurants in central Iowa. After countless hours in telephone calls and personal visits and a number of taste tests and cooking demonstrations, he gradually built a customer list of nearly 20 restaurants.

Biensen then set out in search of a slaughter plant that could meet all necessary health requirements and, at the same time, give him and his product some individual attention. The Iowa Packing Co., Des Moines, a small slaughter and meat processing plant with a history of supplying special cuts for food service institutions, agreed to work with him.

Iowa Packing cannot, however, custom slaughter livestock. So Eden Farms sells Berkshire slaughter hogs to the packer and then buys back the cuts it needs to meet the needs of its restaurant clientele. Demand has gradually increased to the point that Eden Farms needs 30 market hogs weekly.

Considering the supply of Berkshires in central Iowa alone, Eden Farms' volume is a drop in the bucket. Biensen is exploring a number of ways to move more pork, including expanding his restaurant clientele beyond central Iowa, selling to meat markets and grocery stores and selling direct to consumers.

Currently, though, what all these seemingly successful ventures have in common is the ability to meet their customers eye-to-eye.

The Schafers are always answering questions about how they raise livestock. "People want to know but they're not all looking for meat that comes from an organic farm, free range or the like," says Heather Schafer.

Biensen adds that "small-farmer raised" or "antibiotic free" are terms that appeal to many consumers and help restaurant owners, meat buyers and chefs justify paying a higher price for Eden Farms' pork. "They see it as helping save family farms," Biensen says.

Keeping it personal, Stoll says, allows him and his crew back at Alma to immediately address customer satisfaction issues. Of course, some of the requests need to be funneled back to producers, such as the need for smaller finished animals for smaller cuts, or more or less marbling in the meat, and so on.

E-Markets, an Ames, IA, company, has worked with a number of different groups to help develop electronic marketing systems whereby producers, elevators or end users can contract with people who need what they're growing or can grow what they're needing.

In a recent article on the E-Market Internet page, president Kevin Kimle noted that the company has experience in helping poultry producers who need high-oil corn contracts for production with growers; finding quantities of specific hybrids with superior milling characteristics for corn processors; and helping food manufacturers track detailed information about how, where and with what inputs their ingredients were produced.

The Web site (www.e-markets. com) contains links to information on the company as well as information on processors seeking specific types or qualities of grain and/or oilseeds for food or feed processing. If you're seriously interested in producing on contract, it's a good place to start.

Some of E-Markets' services are fee based. NetContract allows growers to contract with end users. NetMarket is an electronic site where processors, shippers and country elevators can post prices being paid for specific identity-preserved commodities. With this information, growers can shop for highest prices for their products.